Correlation Between State Bank and Berkshire Hathaway

Can any of the company-specific risk be diversified away by investing in both State Bank and Berkshire Hathaway at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining State Bank and Berkshire Hathaway into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between State Bank of and Berkshire Hathaway, you can compare the effects of market volatilities on State Bank and Berkshire Hathaway and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in State Bank with a short position of Berkshire Hathaway. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Bank and Berkshire Hathaway.

Diversification Opportunities for State Bank and Berkshire Hathaway

0.37

Correlation Coefficient

State Bank  Berkshire Hathaway

Weak diversification

The 3 months correlation between State and Berkshire is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding State Bank of and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway and State Bank is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on State Bank of are associated (or correlated) with Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of State Bank i.e., State Bank and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between State Bank and Berkshire Hathaway

Assuming the 90 days trading horizon State Bank is expected to generate 1.24 times less return on investment than Berkshire Hathaway. In addition to that, State Bank is 1.59 times more volatile than Berkshire Hathaway. It trades about 0.04 of its total potential returns per unit of risk. Berkshire Hathaway is currently generating about 0.09 per unit of volatility. If you would invest  30,770  in Berkshire Hathaway on October 22, 2024 and sell it today you would earn a total of  16,055  from holding Berkshire Hathaway or generate 52.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

State Bank of  vs.  Berkshire Hathaway

State Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, State Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Berkshire Hathaway

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with State Bank and Berkshire Hathaway

The main advantage of trading using opposite State Bank and Berkshire Hathaway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Bank position performs unexpectedly, Berkshire Hathaway can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Berkshire Hathaway will offset losses from the drop in Berkshire Hathaway's long position.

The idea behind State Bank of and Berkshire Hathaway pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.